Yahoo-Google agreement will change online advertising

19 June 2008

For the past few years, online advertising has been touted as the Holy Grail for advertisers. However, there is often little solid proof that this advertising spend is being put to good use.

Global growth consulting company Frost & Sullivan believes that, proof or no proof, online advertising has become even more attractive following yesterday's announcement of an agreement between Yahoo and Google. The two Internet giants have agreed to a non-exclusive deal that will see Google advertising appear on Yahoo's search engine and other properties. The deal will give Yahoo an estimated $800 million boost.

"The implications of this deal are massive," says Frost & Sullivan ICT industry analyst Lindsey Mc Donald. "An effective oligarchy has been created with no other Internet company being able to attain the combined reach of these two giants. Advertisers will now enjoy the knowledge that one listing is going to achieve (at least) double the reach it would have in the past."

Whether this will be enough to convince advertisers to increase their online ad spend or if they will still require ratings as hard proof, remains to be seen. But there is no denying that the face of the Internet world has changed significantly.

"This deal between the two Internet super powers means that the Internet is a more united environment than it was yesterday," McDonald says. "It remains to be seen what the implications will be for smaller online entities though - have we seen the end of online competition as we know it?"

Already the deal has drawn concerns from consumer groups and the US senate's antitrust subcommittee. However, Google and Yahoo believe the deal was structured to avoid regulatory problems and emphasise that because it is non-exclusive, Yahoo can still acquire advertising from other sources.

Yahoo's board also rejected Microsoft's takeover proposal before signing the deal with Google.